Border Emergency Instead of a Second U.S. Government Shutdown

February 15, 2019

Share prices sank in Asia by 2.2% in Hong Kong, 1.4% in China, 1.3% in South Korea and 1.1% in Japan but have since rallied 1.0% or more in the U.S., Canada, Germany and France.

The dollar fell overnight by 0.5% against sterling, 0.3% relative to the Aussie dollar, and 0.2% vis-a-vis the kiwi but appreciated 0.6% against the Mexican peso, 0.2% versus the euro, and 0.1% against the Swiss franc. Dollar/yen in unchanged.

There’s been a big 1.6% advance in the price of West Texas Intermediate oil, and gold has moved 0.3% higher.

U.S. and British 10-year sovereign debt yields are two basis points firmer. The 10-year Japanese JGB yield dipped a basis point, and the 10-year German bund is flat.

President Trump signed the congressional border security bill ensuring the federal government stays open through September but opened a potential Pandora’s Box by declaring a border emergency to allocate extra money for a full wall on the Mexican border. That move is being challenged, but there’s no telling how the Republican-controlled courts might rule on the matter. With this precedent, a president in the future could declare an emergency for all sorts of stuff, leaving other branches of government defenseless.

Released data today were mixed.

From China came news that CPI inflation had slipped to a 12-month low of 1.7% in January, PPI inflation dropped 0.8 percentage points to a mere 0.1%, yuan-denominated bank loans shot up threefold to more than CNY 3.2 trillion, and the M2 stock of money was 8.4% above its year-earlier level, which is a tad more than forecast.

British retail sales fully rebounded in January from December’s sharp decline. Total sales went up 1.0% on month, after a 0.7% decline, and 4.2% on year. Core sales advanced 1.2% versus December’s 1.0% slide. The recovery was more complete than analysts had anticipated.

Final Japanese industrial production figures for December show a 0.1% dip that month and only a 1.0% average increase on average last year, down from a 3.1% rise in 2017. Capacity usage fell 1.9% in December and slowed to a 0.7% average advance in 2018 from a 3.9% increase in 2017.

Euroland’s trade surplus slipped to a seasonally adjusted 2-month low of EUR 15.6 billion in December. Virtually all of the EUR 40.7 billion decline of the surplus to EUR 194.2 billion in 2018 reflected greater net energy imports. The surplus in trade of manufactured goods actually widened slightly between those years.

Among released U.S. data,

  • Industrial production fell 0.6% in January following a mere 0.1% rise in December. Capacity usage of 78.2% was down from December’s 78.8%.
  • Import prices and exports prices each declined for a third straight month in January. Import prices dropped 0.5% on month and 1.7% on year. Export prices slid 0.6% and were 0.2% lower than a year earlier.
  • The U. Michigan U.S. consumer sentiment index printed at 95.5 in February according to the flash estimate versus January’s 26-month low of 91.2 but still below the pre-shutdown December level of 98.3 and well short of last September’s 100.1 reading. Moreover, the sentiment measure was overshadowed by news of record low expected inflation.

New Zealand’s manufacturing purchasing managers index dropped 1.7 points in January to a 4-month low of 53.1.

South Korea recorded a modestly larger current account surplus of $76.41 billion last year after a surplus of $75.23 billion in 2017.

Real GDP in Singapore advanced 1.4% last quarter but posted the smallest on-year growth rate (1.9%) in nine quarters. GDP grew 3.2% in 2018 as a whole, down from 3.9% in 2017.

Spanish CPI inflation was confirmed at 1.0% in January, down from 1.2% in December. Italy had a EUR 39.8 billion trade surplus last year.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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